Decline in house prices tipped to begin sooner than expected

May 02 2022
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A rate hike in May is expected to trigger an earlier than expected decline in prices outside of Sydney and Melbourne, CoreLogic has said.

Following Wednesday’s confirmation of a 5.1 per cent annual inflation rate, the Reserve Bank (RBA) is facing mounting pressure to lift interest rates at its board meeting on Tuesday for the first time since 2010, which punters are expecting could spark a downward spiral in house prices.

The RBA earlier explained that a 2-percentage point rise in interest rates could translate into a 15 per cent drop in real housing prices.

But even before the official cash rate target has increased, a lift in average fixed mortgage rates, lower consumer sentiment, affordability constraints and higher levels of supply have started to push prices downward. In Sydney and Melbourne,O prices slipped 0.2 per cent and 0.1 per cent, respectively, in March.

Preliminary readings from CoreLogic’s daily HVI point to another monthly fall in housing values across these two cities in April.

As such, CoreLogic expects a rate hike to trigger an earlier than expected decline in prices outside of Sydney and Melbourne, which could then have a flow on effect for other cities to follow.

CoreLogic’s research director, Tim Lawless, explained that under the RBA’s scenario, based on where national housing values were at the end of March, a 15 per cent drop in values would take housing values back to levels similar as March 2021.

A larger fall of 20 per cent could take national housing values back to similar levels as June 2017, while a smaller 10 per cent drop would see values at levels similar to June 2021 and a 5 per cent drop back to September 2021 levels.

“In markets where housing values have been rising faster, such as Brisbane and Adelaide, a 15 per cent decline would take housing values back to July and August 2021 levels respectively,” he says.

“While in Melbourne, a 15 per cent drop could see values at a similar level as May 2017, or in the case of Perth, back to June 2009 levels.”

As for how quickly prices could fall, CoreLogic’s head of research Eliza Owen said that will depend on where rising interest rates land and a variety of other factors.

She explained that helping offset the downside risk are extremely tight labour markets, improving economic conditions, and recovering migration rates.

“Since the late 1980s, Australia has experienced national downturns that have ranged in severity from a 1.0 per cent peak to trough decline in 2015-16, a temporary correction following the first round of credit tightening via APRA’s 10 per cent speed limit on investment lending, to an 8.4 per cent drop in national values between late 2017 and mid-2019,” she said.

Where interest rates will land is anyone’s guess, with economists posting varied predictions.

ANZ is counting on the RBA to move by 15 basis points in May, before turning to 25-basis point increments from June, with a “real possibility” of one or two 50-basis point moves.

VanEck has predicted rates would land somewhere between 1.75 per cent and 2.25 per cent by year end, while HBSC has published a more modest scenario, tipping rates to sit at 1 per cent by end-2022 and 1.25 per cent by mid-2023.

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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